Natural Gas Deal Finalized Between Two Eastern Mega Powers for Billions

natural gasAn historic deal worth billions in natural gas has been finalized between Russia and China, the two great mega powers of the East that has been in the works for close to a decade. The 30-year accord gives energy-hungry China a vital source of new liquefied natural gas energy, while it imparts to Russia a primary market for the country’s vast energy reserves. The deal is made all the more important due to the shaky relations between Russia and the West at this moment in time.

Some are calling the billions finalized deal between the two great mega powers in the East a sure sign that buyers of natural gas energy now have more buying power than the sellers of that commodity. Those same people are also saying that China received a good price in its dealings with Russia. The agreement makes China the number two gas export market, with the first being Germany, for Russia. It is expected that the ties between the two nations will strengthen under the contract as they try to find a way to counterbalance the United States and Europe’s tight rein on the world energy markets.

The two Eastern mega powers share a rough past, scattered with rivalries and alliances, which seem to have been mended with the $400 billion natural gas deal that was finalized yesterday. During the past 10 years, the two sides have agreed upon such details as supply prices but could not reach an agreement on a final price. They had always stated that they would come back to negotiate those details at a later time. This time around, the deal includes an agreed-upon price. The President of China also wanted to establish an Asian Security Arrangement that would include such countries as Iran and Russia, but would boycott the United States.

The transaction involves Russian company Gazprom, and the Chinese company China National Petroleum Corporation. The deal is being heralded as the biggest of its kind since the Soviet Union collapsed. The 30-year, $400 billion finalized deal between the two Eastern mega powers calls for new infrastructure such as pipelines to be built. Russia is expecting to invest at least $55 billion in construction of pipelines alone, while China has admitted that it will provide similar groundwork within its own borders.

China has already poured billions into the Central Asia area, implementing pipelines through Kazakhstan and Uzbekistan that bring in gas from Turkmenistan fields, in the last 10 years. Between the two mega powers involved in the finalized deal of billions in natural gas energy, China has stated that it would discharge another $20 billion into the project on its side of the border. What was not mentioned was whether or not China would help in establishing gas supply framework within Russian territory.

Although China may need Russian gas to meet its natural gas consumption targets, a main bargaining chip for China was that it was the only nation interested in the East Siberian region of Russia, which holds a large amount of that country’s natural gas reserves. Two of the fields that will be supplying China with natural gas are the Chayanda field and the Kovykta field, both of which are undeveloped and far from markets in Europe, thus making them unattractive to that far off market. Without the $400 billion natural gas deal between the two Eastern mega powers being finalized, the fields would not likely be completed.

Both parties have agreed to a 2018 gas pumping start schedule, although some experts have claimed that Russia will not be able to have their eastern natural gas fields ready in time and that there will not be enough of the commodity to transport. There is also the matter of the completion of the pipelines in the Russian borders leading to China. The Eastern mega power that has finalized a $400 billion deal between its mega powered counterpart for the natural gas it has in its vast territories, has given a loan to Russia in order for Russia to develop pipelines from the fields in the east of its country to the Chinese border. The Chinese would take over on their side of the border.

Although Russia was clearly under pressure to find a market for its natural gas, China was under no such strain. The Far Eastern mega power had already lined up cheaper and substantial gas flows from Central Asia, albeit the $400 billion finalized deal was a huge coup for one of the two eastern mega powers. However, the Siberian natural gas deal gives China a cleaner alternative to other fossil fuels, such as petroleum and coal. These fuels provide China with most of its energy needs today and are the number one cause of that country’s pollution.

The 30-year deal, worth billions of dollars was finalized between the two Eastern mega powers for natural gas, comes at a time when Russia is being hit hard with sanctions from the European Union and the United States for its involvement in the Ukraine Crisis. The European Union has stated that it will cut its gas imports from Russia to punish that country over the Crisis in Ukraine. However, the deal struck with China will provide that country with much needed energy for 25 to 40 percent lower than it currently costs to import liquefied natural gas from over sea countries, making it more difficult for foreign competitors to get into the Asian market.

Opinion by Korrey Laderoute

Sources:
The Washington Post
The Wall Street Journal
The New York Times
Concord Monitor

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